MNI INTERVIEW: Ex-BOJ's Momma Sees Jan Hike Likelihood

The Bank of Japan is likely to raise the policy interest rate as early as January 2026, but a weaker yen toward JPY155-160 could bring forward the timing to late 2025, a former BOJ executive director in charge of monetary policy told MNI.

“The impact of U.S. tariffs on the U.S. and Japanese economies will show up from now on… in the second half of this year through the beginning of next year,” said Kazuo Momma, who left the BOJ in 2016 and is now executive economist at Mizuho Research and Technology. “That is the high uncertainty and Governor [Kazuo] Ueda has been paying great attention to the impact on the global economy,” 

While inflation remains elevated, the BOJ is not currently managing policy based solely on price growth, Momma said, adding that persistently high inflation would, in theory, justify rate hikes if not for concerns over a slowing global economy. 

The Bank is refraining from raising rates in what Momma described as a balanced approach, weighing whether to prioritise future tail risks or near-term global economic risks. “The answer is very clear, and the management of the BOJ’s monetary policy is appropriate,” he said, adding that the risk of hiking while ignoring the global outlook is “very small.”

Exports and production are likely to decline from the second half of this year due to slower global growth, he added, reaffirming his May forecast that the BOJ is most likely to raise rates in January 2026. (See MNI INTERVIEW: BOJ Most Likely To Hike In January - Momma)

The government could increase pressure on the BOJ to raise rates if concerns over yen weakness intensify, he said. However, authorities are less sensitive to its negative effects than they were last year, recognising that a weaker currency supports profits at major manufacturers affected by U.S. trade policy, he added. 

The yen has weakened against the greenback from around JPY140 in April to a peak of JPY150 in late July, and was trading at 147.999 at the time of publication.

INFLATION CONCERNS

Momma said the BOJ’s price risk assessment at its July meeting was appropriate, showing the Bank is conscious of upside inflation risks in fiscal 2026–27. (See MNI BOJ WATCH: Ueda Says To Gradually Raise Rates) “While downside risk to price continues, the BOJ is also worried about the upside risk to prices to be caused by wage hikes,” he said.

Higher raw material costs drove consumer prices in 2023, with personnel expenses accounting for less than 10% of the increase, he explained, citing Teikoku Databank survey results. However, more than half of price rises in 2025 are being driven by labour costs, he noted, indicating wage hikes are now contributing meaningfully to inflation. Even if import price growth slows, the rise in food prices will not pause, he argued.

The BOJ expects underlying inflation to slow temporarily and will assess whether it returns toward 2% before considering a hike, Momma said, adding that this approach is sound and the Bank does not need to change its communication. He rejected arguments for immediate hikes, saying a surge in inflation above 4% – which would warrant rapid and large tightening – is a small tail risk. It is appropriate for the BOJ to focus closely on global economic slowdown risks in its main scenario, he concluded.